Court denies relief to HOA and estate agency

Property partnerships between homeowners associations (HOA’s) and estate agencies came under legal scrutiny when the Cape High Court was approached recently by such a partnership hoping for a court order to restrain the Estate Agency Affairs Board (EAAB) from instituting disciplinary action against the parties. The Atlantic Beach HOA and Pam Golding Blouberg estate agency lost the application with costs.

At the heart of the matter is whether through this partnership agreement and the subsequent marketing efforts of the Atlantic Beach Homeowners Association (HOA), the HOA’s conduct can be classified as that of acting as estate agents. The EAAB believed that to be the case and in 2016 demanded the HOA and their CEO, Harry White, appear before a disciplinary hearing to face charges that they were acting as estate agents without the required Fidelity Fund Certificates, and thereby transgressing sections of the Estate Agency Affairs Act.

The background

The Atlantic Beach Homeowners Association had entered into a ‘property partner agreement’ with Emarie Campbell, managing director of Pam Golding Blouberg estate agency, the only agency according to White who met the HOA’s requirements in July 2015.

According to the agreement, valid for three years, the agency agreed to pay the HOA a ‘marketing fee’ which would be a percentage (ie 1%) of the gross purchase price of each property sold in the upmarket Atlantic Beach Estate situated at Melkbos, near Cape Town. In return the Pam Golding agency would receive ‘marketing benefits’ which included among others that Pam Golding’s name and branding would be displayed on the HOA’s marketing pamphlets and at the entrances to the estate. The agreement was allegedly on a non-exclusive basis.

The agreement apparently didn’t sit well with some of the other agencies operating in the same area. A complaint was lodged with the EAAB against Pam Golding, more specifically Campbell, by a firm of attorneys representing a number of estate agents. The main complaint was that Pam Golding was the only agency allowed to advertise in the estate and for that right they had an arrangement with the HOA to pay the HOA a percentage of the purchase price of each sale. The complainants alleged the agreement fell outside the Code of Conduct of the Estate Agency Affairs Board. They also referred the EAAB to the EAAB’s Practise Notes of 2014 that prohibits estate agents from paying homeowners associations registration fees for exclusive property marketing arrangements (*see note at bottom on Practice Note) and allows for disciplinary action of such agents.

The interesting part is that the EAAB then charged the HOA with acting as estate agents without the required Fidelity Fund Certificates. Pam Golding and Campbell were charged with contraventions of legal prescriptions by undertaking to pay the HOA, in terms of their agreement, at a time when the HOA was not issued with fidelity fund certificates. The EAAB summoned them to appear at a disciplinary hearing.

According to White the grounds cited by the EAAB for the hearing were that the HOA, by signing and implementing the agreement with Pam Golding Properties, was holding itself out to be an estate agent and was acting as a “spotter” for Pam Golding.

Bongani Mlangeni, spokesperson for the EAAB, explained that the Board was of the opinion, after they investigated the complaint, that there was a reasonable likelihood that a disciplinary committee would find that the conduct complained of constitutes conduct deserving sanction. The EAAB then laid charges against the parties.

Pam Golding Properties were summoned to the same hearing on the grounds that, should the HOA be found guilty, the estate agency would have transgressed the Code of Conduct of estate agents.

The HOA and White with Campbell denied the allegations, saying the HOA and White can’t be defined as estate agents and hence the EAAB has no jurisdiction over them and has acted beyond its powers.

Going to the Cape High Court

White explained to Property Professional that, following legal advice, the Atlantic Beach Homeowners Association Board of Directors, together with Pam Golding Properties, felt it prudent to apply to the Cape High Court to review and set aside the EAAB’s decision to charge the HOA and Pam Golding with alleged contraventions of the EAAB Act, and to interdict the EAAB from proceeding with the disciplinary enquiry.

White said following the initial court hearing on 28 November 2017 the presiding judge requested that the parties consider settling the matter. The parties attempted to settle the matter but were unsuccessful, necessitating that a ruling be handed down.

Judge E. Steyn on 20 April referred in her judgement to the arguments put forward by the applicants (HOA, White and Campbell) and the respondent (EAAB). White had argued that the HOA had considered other estate agents as property partners, but Pam Golding was the only estate agency that met with their requirements. White said that this agreement did not exclude other agencies from operating on the estate, but according to him some were aggrieved by the concept and/or the selection of Pam Golding Properties and raised these grievances with the EAAB.

The EAAB argued that the terms of the agreement and its implementation show that the HOA holds itself out to be a property partner of Pam Golding for financial gain through the sale of property on the estate, which, says the EAAB, constitutes the conduct of an estate agent as defined by the Act. The Board mentioned for example that advertisements in the printed media indicated that the HOA was actively advertising and holding itself out as being in partnership with Pam Golding in respect of selling and marketing properties on the estate.

In her statement Judge Steyn said she agreed with the EAAB on the following definition of ‘estate agent’ in terms of the Act: ‘Any person who for the acquisition of gain for his own account or in partnership, in any manner holds himself out or advertises that he, on behalf of any person, sells or publicly exhibits for sale immovable property or negotiates in connection therewith or offers to canvas a seller or purchaser therefor.’

Steyn also said if the HOA, in the implementation of a property partner agreement with an estate agent, should act in a manner or provides a service that falls within the definition of estate agent as quoted, then the EAAB will have jurisdiction over it and White.

However, Steyn explained, it is for the EAAB, through its inquiry committee, to judge whether or not the conduct of HOA and White constitutes the conduct of estate agents, not the court. The EAAB has been constituted and is authorised to investigate and give judgement on such matters she said.

“I do not believe that it is for this court to judge whether the exchange of money in consideration of an undertaking by the HOA relating to the sale of properties by Pam Golding, qualifies as the rendering of services by an estate agent. I believe this is an issue specifically suited to the Board’s committee of inquiry,” Steyn said.

She added that it is in the public interest that this disciplinary hearing should commence and be finalised as soon as possible. She said she’s not convinced of any real grounds of prejudice to the applicants and there had been no allegations that the disciplinary committee would be incompetent or unfair.

“When proceedings are finalised and the applicants are dissatisfied, this court may be requested for intervention on relevant applicable grounds of review,” she said. Steyn’s finding is that the applicants failed to make case for the relief they seek and she dismissed the application with costs.

Going forward

According to White, following the court ruling, the Atlantic Beach Homeowners Association Board of Directors and Pam Golding properties decided to apply for leave to appeal against the judgement, but are also attempting to resolve the matter in the intervening period.  The current marketing agreement comes to an end at the end of June this year. He said the board of the HOA and Pam Golding will prepare a new modified agreement that will address specifically the practices that the EAAB found inappropriate.

“By amending the terms of the proposed new agreement with Pam Golding Properties and by taking such additional action as the Association may deem appropriate to address the concerns which have been raised by the EAAB, the Association hopes to circumvent any further dispute with the EAAB,” White said.

He concluded that they had not had any further communication from the EAAB as to whether or when the disciplinary hearing will take place.

Mlangeni said the EAAB has not commenced any disciplinary action because of the application for leave to appeal the judgement.

“This suspends Judge Steyn’s decision. Accordingly, the disciplinary process therefore cannot proceed while the application for leave to appeal is pending,” he said.

Pam Golding was also approached for comment, but declined.

*(The EAAB’s Practice Note allows marketing arrangements between estate agents and homeowners associations on condition that any fees payable constitute a reasonable cost recovery for services rendered by the HOA, for instance for the supply/erection of advertising boards, branding opportunities etc. Ed.)

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